Wednesday, April 26, 2017

There is a prevalent belief that one needs vision insurance to get a good price on quality eyewear. At first glance it can seem like that is the case, a quality optometry practice or upscale optical can easily quote $400-$500 for a great pair of single vision eyewear, while prices with insurance for a similar pair can be less than $200. However, the truth is not so clear cut. First, in order to access those lower prices on eyewear one pays premiums to the insurance companies, which increase the net total cost of eyewear. Second, vision insurance does not allow one to fully leverage tax-advantaged Flex benefits and Health Savings Accounts. Finally, eyewear costs with insurance are generally fixed and non-negotiable, but fees for private paying individuals are not and most offices and a few retail opticals are willing to offer discounts to private payers through various programs, sales, or cash- and prompt-pay discounts. When these three factors are weighed, you are probably spending more for your eyewear with insurance than if you just buy it from a good optician.

Let’s consider a hypothetical pair of eyewear. At a good optometry practice or optical an excellent pair of single vision thin and lightweight polycarbonate lenses, with a premium quality anti-reflective and scratch resistant coating, might be $300. An average price for a good quality frame might be $200. In total this excellent pair of single vision eyewear retails for $500. What would this pair cost with insurance?

Vision insurance is not like medical insurance, or even dental insurance. It limits benefits to once a year, and offers no indemnity. One carries medical and dental insurance for the routine benefits, but also importantly for the indemnity in case of medical or dental emergency. That benefit makes the insurance and premiums useful even if you are not routinely going to the doctor or dentist. Vision insurance offers no indemnity. If you have an accident and injure your eye, vision insurance does not cover that, only medical covers that. If you break or lose your glasses, vision insurance does not cover that either, they only offer benefits on their strict once-per-year schedule. So what are vision insurance premiums for? You pay into the insurance for the privilege of buying eyewear at a reduced out-of-pocket cost at the time of purchase. But since the premiums are good for nothing else but the eyewear purchase, that money is really just additional cost of the eyewear. Your true cost of eyewear with insurance is your out-of-pocket at purchase plus your annual premiums.

The two largest national vision insurance providers are VSP and EyeMed. Both sell plans publicly and offer several tiers, and the chart below show the actual calculated costs of eyewear with their most popular plans.

Private pay

VSP Standard

VSP Enhanced

Eyemed Healthy

Eyemed Bold

Eyemed Bright

Lenses

$300

$126

$25

$161

$161

$126

Frames

$200

$40

$40

$130

$56

$0

Copay

-

$25

$25

$55

$20

$20

Out-of-pocket

$500

$166

$65

$346

$237

$146

Premiums

-

$169

$393

$57

$199.50

$342

TOTAL

$500

$335

$458

$403

$436.50

$488

The out-of-pocket cost you pay in the optical is dramatically lower. It’s hard to argue against getting a $500 pair of glasses for $65 with VSP’s enhanced plan. One wonders how in the world can they do that, but when you factor in the premiums the picture becomes much clearer. To get that awesome $65 price you had to pay $393 in premiums, so your glasses really cost $458, $100 more than their standard plan! VSP’s standard plan ends up being the best deal, with moderate out-of-pocket costs and moderate premiums.

But there’s still a few factors to consider. The first is private pay discounts. When you use insurance the fees are contractually fixed by the insurance company, the optical is not allowed to give you additional discounts or deals. This is intended by the insurance companies to guarantee fairness to their members so they receive the same price for the same materials no matter which provider they go to, and that providers cannot give one member a better deal than another. The policies do work to that effect, however they also have the converse effect that costs are not negotiable. For private payers price can be negotiable. Retail opticals often run sales and promotions which can be a nice discount, have “package” deals on complete pairs of glasses at a lower price, and offer courtesy discounts for affiliation with medical insurances, AARP, AAA, military, unions, etc. Private opticals and optometry offices can be even more flexible. As with most small businesses, they set their own policies and can offer special pricing to whomever they like. It is common to offer a “prompt” or “cash pay” discount to private payers who pay in full for the eyewear upfront by cash or check. Apart from established policy discounts, it’s also perfectly possible to straight up negotiate the price. Not all offices will be prepared to do such a thing, but again as small businesses even if the person you are working with can’t give you a discount, certainly a decision-maker with pricing authority is present and could be asked. Through all the different pricing options available, it is not unreasonable to get at least a 20% off the regular purchase price.

The second factor is Flex Spending or Health Savings Accounts (HSA). These are special savings accounts that individuals or employers can contribute to, tax free, and those funds are available to spend on any qualified medical expenses, including eyeglasses. These are advantageous both with and without insurance, but they are more advantageous without insurance because the funds can only be used to pay for materials, and cannot be used to pay premiums. Since a significant portion of eyewear cost with insurance is in the form of premiums, a significant portion is not tax free. A private payer can get the entire purchase 100% tax free.

If we assume a very reasonable 20% discount on the private purchase, and a 25% federal tax savings on materials with a Flex or HSA, the real costs look very different. The final true out of pocket cost for the privately purchased eyewear is only $300, while the only plan that beats the private payer does so only by a meager $6.50. Every other plan actually makes the eyewear more expensive. And ironically the “better” plans end up being worse than the cheap plans.

Private pay

VSP Standard

VSP Enhanced

Eyemed Healthy

Eyemed Bold

Eyemed Bright

20% private discount

-$100

$0

$0

$0

$0

$0

25% tax savings

-$100

-$41.50

-$16.25

-$86.5

-$59.25

-$36.5

TRUE COST

$300

$293.50

$441.75

$316.50

$377.25

$451.50

The final consideration, and the most dramatically impactful on the true cost, is frequency of eyewear purchase. So far I’ve considered just a single year. But the majority of eyeglass wearers don’t buy new eyewear every 12 months like clockwork. In fact the industry average for new eyewear purchase is only every 2½ years. The years in which you don’t buy, the premiums continue to rack up and your eyewear gets more and more expensive. Over 2 years every insurance plan here becomes more expensive than buying your eyewear privately. The worst plans cost you $800, while you could have just bought them without insurance for $300.

Private pay

VSP Standard

VSP Enhanced

Eyemed Healthy

Eyemed Bold

Eyemed Bright

2 year cost

$300

$462.50

$834.75

$373.50

$576.75

$793.50

Once you calculate all the hidden costs of vision insurance, it clearly is not very beneficial. Almost anyone would do better to just plan ahead, save some money, get a tax advantaged health account. Private payers enjoy the freedom to choose where they shop, rather than pick from a list of insurance approved shops, and with cash in hand you have a lot of power to price shop the competition and negotiate what you pay. Drop your vision insurance and save some money.